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Private-sector employment crucial for strong economy

The current pessimism in the private sector can be attributed to the state of the South African economy which, in turn, has led to a lack of employment in the sector, says Imperial Fleet Management, part of the Imperial industrial services and retail group, CEO Nicholas de Canha.

He adds that by increasing private-sector employment, the economy will strengthen, as continued expanding government employment relies on the fiscus, which is under strain.

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From a credit perspective, the year started off in an “okay place”, with the effluxion of time credit being granted less easily for private individuals and corporates, explains De Canha.

Entry-level consumers buying vehicles of less than R150 000 have experienced a reduction in credit-approval rates from about 45% to 25%, he says.

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De Canha adds that vehicle price increases have been more muted than last year, with total price increases having been about 4% for original-equipment manufacturers and price increases for imported cars about 8%.

“Currently, there is a pricing disparity, following the weakness of the rand and the ability of the domestic vehicle manufacturers to deal with the impact.” De Canha states that manufacturers have dealt with this successfully through the use of the Automotive Production and Development Programme and their exports.

Government employment has been the prime driver for employment in South Africa over the past ten years, which he says is problematic, as it does not generate the same value for the economy as private-sector employment does.

De Canha says Imperial Fleet Management sees private-sector employment as a marker of economic growth and social stability.

Further, he notes that currency stability is critical, as exporting and importing is difficult with such a volatile currency.

“Small businesses create the most jobs per rand of revenue; however, owing to their size, they often do not have the financial reserves to mitigate the volatility of the currency.”

Further, De Canha notes that added expenses, such as e-tolls, disproportionately affect the smaller companies more than they do the larger companies, as the smaller companies do not have the same financial reserves to mitigate increased expenses.

De Canha highlights that the major drivers affecting the state of the industry are credit extension markers for the South African economy as a whole, and the overall vehicle market and price increases, including the extent of government purchasing, as central and parastatal government spend accounts for about 50% of all leasing in South Africa.

“There is a large gap in the market between the smaller players and the larger players. A policy framework that assists smaller businesses in South Africa would be useful, as it would lead to an increase in employment in the private sector, but unfortunately there is nothing in place,” he concludes.